In deciding whether to manufacture a part or buy it from an outside vendor,which of the following represents a cost that is not relevant to the short-run decision?
A)direct labor.
B)variable overhead.
C)fixed overhead that will be avoided if the part is bought from an outside vendor.
D)fixed overhead that will continue even if the part is bought from an outside vendor.

Question

Quizplus · Accepted Answer

The fixed overhead that will continue regardless of whether the part is manufactured in-house or purchased from an outside vendor is not relevant to the short-run decision. The decision is focused on the short-run cost of manufacturing the part versus the cost of purchasing it from an outside vendor. Direct labor and variable overhead are both relevant costs that need to be considered in the decision-making process. Fixed overhead that can be avoided by purchasing the part from an outside vendor is also relevant since it will impact the short-run cost.

In Deciding Whether to Manufacture a Part or Buy It